What are the most popular methods of procurement?
The Procurement Act of 2016 and corresponding regulations apply to public employers. It is distinguished between procurements with an estimated value above or below the EEA threshold (2018: 51 million NOK in construction contracts and 1.3 million NOK for goods and services contracts, including consultant contracts).
For procurements with an estimated value below the EEA threshold the employer may use open or restricted procedures. The employer may choose to negotiate or to award the contract without any negotiations. Both procedures are equally popular.
For procurements with an estimated value above the EEA threshold the most popular procedure is open or restricted procedure without negotiations. Negotiations are allowed, provide that certain criteria are met.
Procurements with an estimated value below 1.3 million NOK do not require any special procedure, except that they must be accordance with certain basic principles of tender procedures, e.g. equal treatment, transparency and competition. Contracts with an estimated value below 0,1 million NOK are exempted from the procurement regulations.
In the last years, several public entities have been applying the Best Value Procurement method (BVP). In short, this method implies that the public entity looks at factors other than price, such as quality and expertise, when awarding the contract. The BVP-method is typically use in combination with a restricted procedure without negotiations.
Sweden has a long tradition of competitive bidding in the construction industry, including private as well as public works. Public procurement is regulated by legislation (see more below).
Build-only type of contracts (i.e. contracts with owner/employer design) is the most common contract form, although design-build contracts are becoming increasingly popular. Sweden’s largest procurer of construction works, the Swedish Transport Administration, has announced a plan to increase its use of design-build contracts from around 10% to 40%, suggesting that the design-build method of project delivery will give the contractors more freedom and incentives to develop innovative and efficient solutions.
The three main procurement methods in Hong Kong, in very broad terms, are:-
(a) Traditional general contracting
(b) Design and build
(c) Management contracting
The most popular form of procurement, and most construction work is currently carried out under, the system of traditional general contracting. This is where design is a separate function from construction – design and construction proceed sequentially, with construction commencing only after the design is complete or substantially completed.
Hong Kong is still at a relatively early stage in its adoption of Public Private Partnerships (PPP). Popular forms of PPPs include Build-Operate-Transfer (BOT), Build-Own-Operate, Buy-Build-Operate, Design-Build-Finance-Operate (also known as the Private Finance Initiative (PFI)) and Design-Build-Operate.
The three most common methods of procurement are the traditional method, design and build, and construction management.
Under the traditional method, the employer engages a design team to design the project, and then the project is put out to tender. The main contractor enters into a contract with the employer to complete the project, following the instructions of the employer’s design team which acts as an agent of the employer.
Design and build is an increasingly popular procurement method because it offers the employer single point responsibility . The employer engages a consultant to produce an outline design, which is then put out to tender. The design and build contractor who successfully bids for the works engages its own designers (or more commonly novates the original designers) to complete the design and then builds the project.
Less common, and only for use by sophisticated employers, is the construction management method whereby the employer enters into (i) a contract with a construction manager and (ii) a large number of contracts directly with the various trade contractors. The employer must take the risk of trade contractor default or insolvency and manage the interface between the trade contractors.
The most common type of project delivery method in the United States is design-bid-build. Under this method, the owner first retains an architect to prepare design drawings and specifications, after which the owner puts those documents out for review and bidding by contractors. Contractors who place bids agree to construct the project in accordance with the design prepared by the architect. The lowest, most responsive bidder is generally selected by the owner. Both the architect and contractor have separate contracts with the owner, who exerts control over the design.
Another popular project delivery method is known as design-build. Under this method, the owner generates the concept and the programmatic requirements, and then contracts with a single entity (known as the “design-builder”) to perform both the design and construction of the project. The owner benefits from the design-build method because it provides a single point of contact, minimizes risk for the owner, and expedites the design and construction phases of the project, which reduces the delivery schedule by overlapping those two phases. The contractor on the other hand takes on additional risk by contracting for both design and construction; however, such risk can be mitigated through contractual indemnity and insurance.
There are several other forms of project delivery which are lesser used, but nonetheless have important applications:
- The design-build-operate-maintain method combines the design and construction responsibilities of design-build procurements with operations and maintenance. Generally used in heavy construction projects, the design builder is also required to operate and maintain the project upon completion, and is compensated with a portion of operating revenues subsequently generated.
- The design-build-operate-transfer is the same as the design-build-operate-maintain, with the additional requirement that the design-build contractor is responsible for obtaining project financing. The design-builder is then paid from project proceeds upon completion, and once fully compensated, turns the project over to the owner.
- The Construction Manager at Risk method involves both preconstruction and construction phases. The owner retains the architect to prepare design drawings and specifications. The owner also retains a construction manager to consult with the architect and manage the construction. As the architect is developing the design, the construction manager is reviewing it and putting out to bid those portions of the design that are complete. The construction manager enters into contracts with subcontractors. This method allows construction to begin before the design is complete.
- The Construction Manger Not at Risk method is nearly identical to the “at risk” method. The one key exception is that the owner, not the construction manager, enters into contracts with the trade subcontractors to construct the project.
Only when the application of the Law on Public Procurement is mandatory, in such cases the methods envisaged by the same law are to be used. The same consist of the following Public procurement methods/procedures:
- Open procedure;
- Restrictive procedure;
- Qualifying procedure;
- Negotiating procedure with publishing an invitation to place bids;
- Negotiating procedure without publishing an invitation to place bids;
- Competitive dialogue;
- Design contest;
- Low-value public procurement procedure.